Equity Analysis /
Mexico

Alfa: Quarterly Report 2Q22: Positive strategy and Alpek main driver

  • Positive quarter driven by Alpek’s figures, Sigma with lower profitability, and Axtel continues really affected

  • Axtel spin-off its expected by the end of 2022, projecting an Alfa NAV w/o Axtel of $22.12 and a discount of 35.5%

  • The discount on the Net Asset Value of Alfa, close to 35%, seems to us extremely interesting to accumulate positions

Marissa Garza Ostos
Marissa Garza Ostos

Head of Equity Research

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Banorte
25 July 2022
Published byBanorte

Positive strategy and Alpek main driver

  • Another positive quarter, where the environment dynamics favored Alpek, Sigma with lower profitability due to Europe challenges, and Axtel results continue to be greatly affected, but the spin-off goes on

  • Given the strategic priorities −strengthening the balance sheet, key businesses, and independence− and a very attractive discount on the NAV (~35%), we reiterate Alfa within our top picks}

Resilient despite the environment challenges. Alfa's results were positive and better than expected. Consolidated revenues amounted to MXN 96.873 billion increasing by 29.5% y/y, while EBITDA advanced 42.1% y/y to MXN 14.145 billion. This is mainly explained by Alpek’s performance, which achieved another record quarter, supported by favorable price dynamics, the Octal acquisition and margins that continue to surprise (which led it to increase again its EBITDA guidance).This was mitigated by the profitability pressures observed at Sigma, where despite the 9.5% increase y/y in revenues, EBITDA contracted by 5.6% y/y due to the high costs of energy and raw materials mainly in Europe, in addition to a lower Campofrío Frescos contribution. Although cost reduction initiatives and pricing strategies supported sequential improvements, Alfa reduced its guidance for this division to MXN 700 million vs. MXN 760 million previously, given the prevailing challenges. At Axtel, the weakness in the figures continues with falls in revenues of 14.7% and in EBITDA of 31.8% y/y. However, attention remains on the potential spin-off recently approved by Alfa's shareholders' meeting, hoping to conclude before the end of 2022. With this independence, Axtel will be able to focus on initiatives to resume growth, without neglecting strategic options, which we consider positive. The discount on the NAV seems extremely interesting. Given a strategy that seems appropriate to us, and after the marginal adjustment in the 2022 guidance to $2.280 billion vs $2.283 billion previously, which already considers Axtel spin-off, we believe that the discount on the Net Asset Value of Alfa, close to 35%, is extremely provoking to accumulate positions. We reiterate Alfa within our top-picks selection.

Alfa’s Theoretical Value - NAV

Operating results by Division

Alpek

MXN, million

Sigma

MXN, million

Axtel

MXN, Million